What Are Multi-Asset Strategies?Guest Post
Multi-asset strategies are styles of investment that provide for including a variety of different financial assets such as stocks, bonds and cash in a portfolio. Multi-asset strategies can provide greater diversification and less downside risk while also adding income and growth potential compared to strategies focused on a single asset class. Professional investment managers overseeing funds labeled as balanced, diversified growth and target date may employ multi-asset strategies. To select an investment strategy that’s right for you, consider talking it over with a financial advisor.
Q4 2022 hedge fund letters, conferences and more
Multi-Asset Strategy Defined
An investment strategy is a particular approach to investing that has an effect on choices the investor makes. Some major investing approaches include growth, income, value and socially responsible strategies.
Asset allocation can be one of the defining characteristics of an investment strategy. For instance, a growth strategy calls for investing mostly or entirely in stocks that have an above-average prospect for increasing in value. An income strategy emphasizes buying fixed-income securities such as bonds to obtain cash from dividends. In addition to stocks and bonds, the other two major asset classes are cash and alternatives. Alternatives may include almost any other investment, ranging from real estate and commodities to derivatives and private equity.
A multi-asset strategy is one that permits an investment manager to invest portfolio funds into a wide spectrum of assets. A multi-asset fund or portfolio may contain a blend of stocks, bonds, cash and alternative investments.
Strategies may also dictate specific investing styles, such as active or passive. The active investing style calls for managers to try to beat the market by buying and selling assets. A passive investing approach is designed to track a particular benchmark, often an index, and minimizes buying and selling as well as fees and other costs. Multi-asset strategies may be either passive or active.
Multi-Asset Strategy Benefits
Diversification is one benefit of a multi-asset strategy. When a portfolio is exclusively invested in one asset class, it becomes vulnerable to downturns affecting that asset class. Putting portfolio funds into multiple asset classes, some of which may tend to move up when other assets move down, can smooth overall returns, improve consistency and reduce risk help by protecting against losses.
Multi-asset strategy can also add income to a portfolio compared to one that is invested only in common stocks. Compared to an income strategy, a multi-asset approach can add growth potential in addition to the opportunity for dividend income.
Individual investors seeking to fund a secure retirement often engage in multi-asset strategies. These strategies can be a good fit with retirement savers looking for long-term, consistent wealth accumulation while limiting exposure to fluctuations in particular asset class values.
Many mutual funds also engage in multi-asset strategies. Some of these are called multi-asset funds, but funds bearing names such as balanced and diversified growth and income are also likely to be managed with a multi-asset strategy.
One popular type of multi-asset fund, especially for retirement accounts, is the target-date fund. These funds often are named after a future year, such as 2030, and marketed to investors who plan to retire on or about that year.
Target-date fund managers generally are empowered to invest in a broad range of asset classes, consistent with a multi-asset strategy, in an attempt to maintain a consistent return and manage risk. Managers of these funds will, for instance, typically shift asset allocation from riskier stocks to more stable fixed-income investments as the target retirement date approaches. Target-date funds may also invest in alternatives, such as options, as part of a multi-asset strategy to manage risk by hedging.
Some funds managed in a multi-asset style are specifically labeled as multi-asset funds. Funds bearing names such as balanced and diversified growth and income are also likely to be run with a multi-asset strategy.
The Bottom Line
Multi-asset investment strategies accommodate investing in a broad range of asset classes rather than focusing on a single type of asset. For instance, rather than investing solely in growth stocks or bonds, a multi-asset strategy might enable and encourage putting money into both of these asset classes, as well as others including cash and alternatives. Individual investors as well as professional fund managers may employ multi-asset strategies. Multi-asset investing strategies promise to manage risk and improve returns and consistency by boosting diversification compared to more focused approaches.
Tips for Investing
- A financial advisor can explain the benefits and uses of a multi-asset investing strategy and how it might be a good way for you to meet your financial objectives. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- An Asset Allocation Calculator can guide you to craft an investing strategy that allocates assets between stocks, bonds and cash in a manner appropriate for your individual characteristics. By considering your risk tolerance, age, goals and other factors you can distribute your available investment funds so as to best match your needs for income, growth, safety and liquidity.
Article by Mark Henricks, SmartAsset.